Pressure on to use public dollars to lure auto investment

Ontario Premier Dalton McGuinty (left) and Prime Minister Stephen Harper shake hands after attaching the final parts to a Lexus SUV at the Toyota automotive plant in Cambridge, Ontario on Jan. 23, 2013. (THE CANADIAN PRESS/Frank Gunn)

The federal and Ontario governments’ announcement Wednesday that they will kick in $34 million for Toyota’s expansion at its Cambridge plant signals the growing pressure for public dollars in the global automotive investment game, an industry analyst says.

“We’re going to see new investment in North America as the auto industry continues to grow back,” said Tony Faria, professor emeritus of business at the University of Windsor. “Carmakers are going to be adding capacity. If Canada wants part of it, we’re going to have to be more aggressive, otherwise investment will go on a cost-basis reason to the southern U.S. and Mexico.”

Toyota Motor Manufacturing Canada Inc. will receive $16.9 million a piece from Ottawa and Ontario to help the automaker launch a hybrid version of the Lexus RX 350 SUV at the plant, which is the sole North American manufacturer of the luxury nameplate. Cambridge also will be home to the only Toyota plant outside of Japan to build hybrids.

Ottawa’s “repayable contribution” comes from the five-year $250 million automotive innovation fund, which was first launched in 2008 and renewed last month, noted Prime Minister Stephen Harper, who along with Premier Dalton McGuinty, made the funding announcement at the Cambridge plant. Ontario’s share will come from its Strategic Jobs and Investment Fund.

“Our government is committed to helping Canada’s automotive sector remain globally competitive and prosperous,” said Harper. “Today’s support will allow Toyota to produce a hybrid version of the Lexus sport utility vehicle in Cambridge, the first hybrid model ever built in Canada. This milestone initiative to build greener more fuel efficient cars will advance Canadian innovation and increase our ability to compete internationally resulting in more high-paying, stable jobs.”

The project will generate an additional 400 jobs in Cambridge and will involve building a new blended assembly line that will increase production of the current Lexus model. Production of the RX 450h hybrid is expected to begin in 2014.

Toyota, which employs more than 7,000 workers at plants in Cambridge and Woodstock, announced last year it would spend $125 million on the new assembly line.

“It keeps Toyota growing in Ontario,” said Brad Duguid, Ontario’s minister of economic development and innovation. “We have the largest Toyota presence outside of Japan.”

While both government’s pledged to work with carmakers to attract more investment, Duguid cautioned the province’s “first priority” is to reduce its $11.9 billion deficit.

“I expect in the future Ontario will be a strong partner with the auto sector,” said Duguid. “We’ll continue to be there when we have to be. But, I don’t want to leave the impression we are flush with cash and can do more than what we’ve been doing.”

Ontario will risk future auto investment unless it can match the “enormous” incentives dangled by the southern U.S., said Faria.

“It’s not unusual for governments in the southern states to assemble the land for a plant, provide the land free, provide all of the upgrades in infrastructure to service the plant, provide training funds for the workforce, tax abatement for 20, 30 years in future, pay directly for part of the plant’s construction — in other words, cover between 33 and 40 per cent of the entire investment the company would be making in the facility.”

But Duguid said Ontario remains a “good place to build cars.”

“We’re the only jurisdiction in the world with five auto assemblers and we’re working hard to see if we can attract even more,” he said. “We have the most competitive corporate tax structure and the most skilled and educated labour.”

However, Ontario also is viewed as an expensive place to do business, particularly by the Detroit Three automakers.

General Motors Canada CEO Kevin Williams cited higher labour costs compared to those at UAW plants when explaining GM’s decision to shift production of the next generation Chevrolet Camaro from Oshawa to Lansing.

And Canada may be shifted to the sidelines of the ongoing recovery in the North American auto industry, said Faria. “We’re looking at a minimum of a million additional sales in North America in 2013 and by 2018, 2019 we hit a new sales record. There’s going to be a lot of new capacity, but I don’t see Canada getting much of it.”

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